Originally Published 8/30/11
The case for Free Shipping: Why would anyone NOT want free shipping? It’s the cherry on top of a good deal or sale. It eliminates that extra couple of bucks that along with tax, makes your order that much more before you finalize your purchase. It’s certainly the direction the online retail industry is heading in. Nordstrom just announced a new every order free shipping policy this week. LL Bean changed their shipping rules earlier this year. And Bonobos, well Bonobos might be the leader in this department.
The case for Codes & Promos: I know it sounds completely insane, and I’m no economist, but from what I understand my UPS guy, Mailman, and FedEx driver don’t work for free. Somebody has to pay for that package to get to your doorstep. Maybe the every-order-ships-free retailers are absorbing those costs. Maybe they’re going to somehow quietly pass along that expense to their customers. With codes and promos, free shipping is a way to reward loyal customers who have given them an email address or follow them through social media. Thus, those people are more easily accessible, easier to sell to, and perhaps that softens the blow of eating the shipping costs.
Now there are plenty of Econ guys in the audience, and from past threads it’s obvious there’s a lot of passion there. Let’s keep it friendly and simple so those of us who majored in something less useful stay on board. What would you rather see? The continuation of promos and codes? All “free” shipping? Or a mix of the two? Leave it all below.
Top pic via Nordstrom. Follow Barron: @effortlessgent as well as effortlessgent.com Hat tip @harold_f for also mentioning the Lands’ End Canvas free shipping code and pin, which by the way expired last evening.
This is stupid. who wouldn’t take free shipping right off the bat? Isn’t that one of few perks of online shopping to begin with, that and no tax (in most cases)? Otherwise, I’d just go to the brick and mortar shop instead. Also, the UPS / fedex / USPS guys still get paid, as the retail company ends up paying for it. Again, a silly argument.
Pretty silly to look at free shipping by itself. I’m pretty frugal, and when looking at the price of an item, these are the things I think about:
1. How much do similar items from comeptitors cost?
2. What coupons did this manufacturer run in the past? (For some places, you’d be insane to not wait for a 30-40% off coupon)
3. Are there any other cashback sites to stack another 2-3% ?
4. Can I buy gift cards at a discounted price to also reduce the price? (another 5-10% off)
5. What is their RETURN shipping policy??? Free at a few places, but rare!
He didn’t say shippers wouldn’t get paid, he said online sellers might be more likely to pass the cost of “free” shipping onto customers through higher prices or be forced to eat the cost themselves (which isn’t cheap). Ergo, sending free shipping codes to loyal customers might be the better deal for consumers like us as those who make one-off purchases or don’t care about savings pay the full (and largely overpriced) shipping costs, subsidizing it for the code users.
Looks like a classic case of price discrimination-http://en.wikipedia.org/wiki/Price_discrimination#Coupons
Essentially have a small hurdle to differentiate between those who have the cash and those who don’t. Express is obviously all about this given their constant stream of discount codes.
I live in DE so tax is never an issue. It’s always shipping fees. My rule of thumb is where can I get free shipping automatically. Then it becomes a question of: Is there a minimum $ amount you must spend for free shipping? And like zerostyle pointed out, I like to know the return policy. I haven’t struck out on any online orders but I know it’s a matter of time and that’s good info to have.
I think its safe to say that most of us prefer to receive free shipping. As a consumer, this is rational. It is also safe to assume that there is no such thing as free shipping. Companies like LLBean are just factoring this cost into the prices of individual items. Spread across their inventory (brick and mortar as well as online) the price hike is probably minimal. In this case you could make the case that shoppers at an actual store are unfairly picking up the tab for a service not provided to them, but again, probably small enough to not notice and at the same time this may be fair as I’m making the assumption that selling a good at a store is more expensive for the company than online (rent, staff, HVAC, etc). In theory online goods should be cheaper than those in the store. Long story short, I’d propose that free shipping is certainly more advantageous for the consumer and probably not much of a burden to the seller. Then again, I haven’t had my coffee. Offering discount codes is preferred by some companies as they feel it incentivizes brand loyalty.
What irks me is a company like J Crew that charges more for shipping depending on the price of the item shipped. Can’t see the rationale for this as a more expensive item does not inherently cost more to put in the mail.
I may be wrong, but I think I saw a lot of prices go up for LL Bean’s merchandise (especially in the Signature line) when they introduced Free Shipping. So basically, they’re baking the shipping cost (it was a minimal price bump, like $5) into the cost of the clothing itself.
So maybe the question is: would you prefer the price of the item include (a flat rate) shipping cost? That way, you don’t have to think about it.
I think, in the end, the smart move would be to look at total cost of the items under both policies. A few random observations.
1. It is pretty unlikely that big retailers are paying anywhere near what you or I would pay to ship something. I used to work in a university office that shipped tons of stuff, and we had negotiated a contract with FedEx that was something like half what walk up pricing would be.
2.The sense I get is that free shipping is more of a savings on small orders, a percent discount is more of a saving on big orders.
3. LL bean prices on some items do seem to have gone up (the only thing I buy consistently there are the T shirts, and they are up about 2 bucks), but I’m not sure that this is really shipping driven. There are bigger market forces at work as well, and consumer spending has been up a bit lately, which would cut back on the need to discount to get people to buy stuff.
4. For me, downside of coupon codes is that they often don’t coincide with when I actually want to buy stuff.
I agree with Mike N: the costs have been spread out over the entire inventory so that the average consumer won’t see it. But I assure you that no board of directors would approve “just eat the cost of shipping.” The money is coming from customers.
If they ‘eat’ the cost of shipping, and it ends up that people buy more from them and they end up making more than they would have, was it really eaten?
Did you even read the post?
Precisely what I was thinking. But here’s the nuclear scenario: LL Bean’s free shipping gets them more customers (and therefor, makes up for the “hit” they’d take initially.) Other retailers like L.E.C. follow suit and it becomes a free shipping arms race. Eventually it becomes the norm, the customers get spread back out, and those free shipping costs just end up getting passed on to everyone once again in the form of price increases, and the loyal customers who used to make use of those free shipping codes don’t see them anymore.
Price wars are always great for me 😉
We recently adressed this issue at my company. We have a different type of product, but if a customer wants to enable auto renewal, we pick up the shipping cost. However, due to the ability to purchase a very inexpensive product and set up auto refill, we were getting killed on delivery charges. The hope is that we entice the customer to buy more, but the plan does not always go as desired. The solution we decided upon requires a minimum purchase to activate the free shipping ($20). Just because you sell more, does not mean you are making more, there are added costs of doing business. Selling more of the right things the right way, so that customers are happy and the company is making money, that is the ideal scenario.
Promos and codes are a form of price discrimination. I actually like an easy to find promo code (like LLC) better than an always “free” shipping option. People who are frugal and care not to pay that money don’t pay it, and people who just don’t have the time to worry about these things pay the shipping, online seller benefits and it can reduce its costs.
The fairest shipping/return policy I’ve encountered looks like this: Free shipping on orders over $50, flat-rate discounted returns, and a no-strings-attached unlimited return policy. I’m sure there are people who take advantage of the return policy, but there are probably many, many more who develop intense retailer loyalty and do word-of-mouth advertising.
In any case, I don’t mind a minimum purchase amount triggering free shipping. I just hate when it’s some absurd amount like Nordstrom’s used to be ($200?!?).
#5 for sure. That to me is a huge deal and worth paying a little more. That’s why I think Nordstrom hit it out of the park with their latest shipping policy. Free returns are key.
I want to agree, but in this case, I think I, and fellas like me, might lose out. I can time my purchases to run with free shipping codes. If item A costs $50 with $8 shipping, but after a “free shipping” policy change now magically costs $54 (with the other $4 being subsidized by the flood of new customers coming for the “free” shipping), then I’m losing out on $4 that I could have saved by being a loyal customer and getting a free shipping code.
Now that’s assuming a ton of things and over simplifying the hell out of it, but I think that’s where this could get a little hairy.
What is this online shopping you speak of?
Joe – what is the current free shipping code for Lands End Canvas? Do you have any experience with their jeans? If so, whats your opinion?
hasnt nordstrom always offered free returns tho? theyve always accepted online returns in the store and im pretty certain they always sent a return label with your order. its been a while since i worked at nordstrom but their return policy has always been pretty great. glad they finally started shipping stuff for free too. and just throwing this out there for people who may not know, but if the item you want isnt in stock in the store they can always order it for you and its free shipping. same return policy as always too
this might be off topic and obnoxious, but nothing beats zappos, especially if you have the VIP membership. Free express shipping on ALL items, which are already at a low price, and free returns too.
That’s how airline reward miles got started….
So the reason I questioned this whole thing in the first place is because LLBean Sig, which is pretty much in direct competition with LEC, offers free shipping off the bat… whereas LEC doesn’t.
As a shopper, I don’t want to have to fish around for codes. I know they’re out there (and I did end up using one) but that’s not my style. I want it to be free regardless. I even questioned how buyers classify themselves in the latest post on EG: http://goo.gl/wJ2Az and I think shipping costs play a big part in that.
As a brand, I understand that the company ends up paying for it (or increases their prices) but that’s on a case-by-case basis. For Fifth&Brannan, our costs are based solely on what it takes to create the clothing and the industry-standard price markup. We didn’t bump up our prices after taking into account shipping costs. That means we eat those costs, as well as the potential return / exchange shipping costs… we pay for it all.
Does that suck for our bottom line? Yeah, probably. But does that mean we give the best, most awesome customer experience ever, when customers realize they can try us out and can send all their goods back if they don’t like em, no questions asked? Hell yeah.
It’s all about the customer experience. For Fifth&Brannan, an untested, brand new label, the way we alleviate all reservations about giving us a try is providing our customers w/ absolutely no costs or risk to do so (other than the cost of the product).
Is that how LEC should reason it out? I don’t know. So, perhaps I’m biased, but if our small 2-person company can offer great service through no hassle returns and free shipping both ways, why can’t a huge company like LEC do that? Maybe they’re in the process of doing that, who knows, but when I went shopping on their site yesterday, they weren’t yet.
Codes make other promotions more likely and common, but free shipping all the time is nice.
Damn. Barron is KILLING Lands’ End Canvas. Maybe they could cut their time spent on / budget for those hand written thank you notes and put it towards 24/7/365 free shipping?
Maybe my judgement is clouded, being that they’ve been good to us (although not a direct advertiser, we have none) and we’ve got a big time promotion coming up with them later on in September.
Yes, that was a cheap plug.
I didn’t mean to come off as like, I’m way cooler than LEC or anything, bc it’s not even like that. They may have costs that we don’t know of, and thus have to charge shipping. Anyway, the handwritten notes is a nice touch, I’m not gonna hate on that.
Off the bat is great, but if you assign a price to your time you’ll see finding a free shipping or other promo code on THE INTERNET will always put you net positive on the time/money exchange. LEC in particular is awesome as they seem to run the same kinds of promos continually (not to jinx it…): 1) Free shipping on any size order 2) Free shipping and $10 off orders over $50 3) Free shipping and 20% off orders. I am on their mailing list and a decent volume customer (signed up for the rewards card too) and even when I get a promo code, I still do a quick Google search to see if I can out do my code. I’m most partial to option 2 and break up my orders into as many $50 blocks as possible. Might seem like a waste but saving $20 extra on a $150 order by breaking it up puts gas in my tank, etc. Option 3 would save me the time of breaking orders up, but it seems to be the most rare of the promo codes. Can’t beat their return policy, even if it isn’t free to ship it back, how many Sear’s stores are there in the US? (No idea how accurate it is, but a quick search came up with 926 full-sized stores in the US and 3,900 including all the stores under the Sears Holdings) Almost irrelevant but fun fact none the less, personally I have 8 within a 15 mile radius.
Don’t mean to sound as though I’m entirely sticking up for LEC (although I am to an extent). I’d rather spend 3 minutes (if even, my go to is retailmenot) to find promo codes than have the company bake in shipping costs because some people don’t realize how powerful a quick search on the internet can be don’t explore their options.
Total cost wins it for me. I don’t care who gets paid (retailer/shipper) as long as the savings are being passed on to the customers. That however is coming from a customer point of view =)
FALL 7955 (good through 9/1)
I prefer their straight fits. But I haven’t tried on this season’s pair yet…
Barron, agree with you here. Free shipping is definitely a plus for the customer experience. I know I always appreciate it. I can understand charging if the order total is under a certain limit as this can really hurt margin, especially if the item in question is discounted already. I think underlying issue may be that traditionally mail order and early internet orders always charge shipping and handling fees. Typically the shipping costs are higher than the costs paid to actually ship the item and the company will use this extra as a way of padding their overall margin/make up for short falls elsewhere. Consider it the checked bag fee of retail. Customers are used to paying for shipping and as such don’t complain too much. I think there will certainly be a shift to free shipping as product lines realize it makes sense to incentivize online shopping as there is less overhead for the company and the margins are higher when they don’t need as many brick and mortar locations.
I’ll take shipping cost with free returns over free shipping with a return cost any day of the week. I’ve completely voided potential purchases, even with free shipping to me, because there would be a cost to me if I wanted to return the item. Occasionally this fee can be waived, but I think it’s ridiculous for an online retailer to send out a product that I can’t try on, measured in vanity sizes that probably aren’t accurate, and if I don’t like it for any reason, I can’t send it back to them without it costing me some coin. Sorry, I’ll save my money for a company that actually wants to work with me to get me in their clothes and fitted correctly.
Bonobos takes the cake when it comes to shipping and return service – and then makes another cake and takes that one, too. Since they have no B&M store (aside from a warehouse in NYC), they rely on their superior product fit and stellar, no-questions-asked, however-long-for-whatever-reason return policy. I’ve had them swap out colors, styles, and even intercept packages that had been shipped out to change the size. They’ve worked with me on a personal level to ensure my happiness as a customer, which has led me to much repeat business (around $1000 worth so far). They are the benchmark for all online retailer customer service, IMO.
I can accept that through some kind of benevolent ethos toward consumers that your company is going to willingly accepting lower returns on your bottom line for the sake of the customer, but realistically, this can only happen in the short term. The additional cost from free shipping will eventually be rolled up into your “industry-standard price markup” because free shipping is becoming the industry standard.
If it’s becoming industry standard (which is great for the customer) then eventually, a new equilibrium will be set, and those lost margins are made up for anyway, since everyone will be marking up prices. Then what?
Right now free shipping (or hand written notes, in LEC’s case) or any of those small touches really add to the customer experience, and that was my whole point. It’s more about the experience I got firsthand, as an observer and shopper of both LEC and LLBean Sig.
See, I don’t think the fact that it’s becoming the industry standard is good for all customers and that’s my original point.
For some customers it might be perceived as good, but if you’re a loyal customer whom a brand rewards with free shipping codes (because you’re worth more to them since they can access you and potentially your wallet easier through email) then an industry wide free shipping trend isn’t a good thing. Because those codes disappear, your loyalty isn’t rewarded, and your “free” shipping disappears into the muck of markups. Y’know?
Wholeheartedly agree with that^
I dont like marketing like with BR, GAP and Old Navy. They make themselves look cheap by sending out an email almost every day saying “Hurry, sale ends today” or “Gear Up Now” or some other rushed command. Yes it’s nice to have a sale any time I want to purchase something, but I don’t want to be told to “act quick” when I know I will get the same email tomorrow.
Seeing as economics was barely addressed in the comments of old, I will add a classic supply-end tactic that makes use of codes and discounts: perceived scarcity. Most casual shoppers who are on a bit of a budget will be discriminating with their ducats. If a site offers free shipping at any time, there is no immediate incentive to purchase the product; that deal will be around forever, and the item might be found for less elsewhere.
However, putting a time limit on a code which drops the price of an item creates a sense of urgency in the purchase. In addition, the site can always hope for less-attentive shoppers who will make purchases without using codes. In this manner, a site attracts most of those who are actively seeking a deal (but are perhaps swayed by the heady rush of a bonus, such as free shipping) and does not have to cover the cost of shipping everything for free.
Plus, it never hurts to get a potential customer to your site, even if they do not purchase an item. Nothing accomplishes this like a massive FREE SHIPPING! code banner.
These companies ship so many packages they have corporate rates worked out with UPS and the like. So cost to ship is not as high as if you or I were to ship something. Free shipping isn’t really costing these companies that much.